East Africa enjoying the power of regional trade

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Nations of eastern and southern Africa have been working for most of this decade to build an alliance to strengthen their position as an economic and trading force. They recognize that good governance and consistent policies throughout their region will create a better atmosphere for business and trade. An improved business climate will provide their people greater opportunities for jobs and prosperity.

Neighboring nations of the world are teaming up in regional trade groups, improving access to regional markets, and strengthening their economic integration. By committing the partners to clear and enforceable rules, these organizations promote transparency and good governance. The trend is marked by a string of acronyms stretching across the globe—APEC, Asia-Pacific Economic Cooperation; ASEAN, the Association of Southeast Asian Nations; NAFTA, the North American Free Trade Agreement; and, of course, the world’s most advanced regional market, decades in the making, the EU, the European Union.

Now, here comes COMESA, the Common Market for Eastern and Southern Africa.

COMESA has 19 member countries: Burundi, Comoros, Congo Democratic Republic, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe. Fourteen of these states are already in a free trade area.

Trade development among our member nations is the cornerstone of our agenda, and we have pursued a variety of steps to liberalize and facilitate trade throughout our region in a process that economists call “integration.” We also have a vision for our relationship to lead to a common market and achieve monetary union, following the same course as the Europeans.

The COMESA Free Trade Area [FTA] gives us a type of trade bloc in which our countries have agreed to eliminate tariffs and quotas when we trade among ourselves. The next step for us in this process of economic integration will be to form a “customs union,” whereby we retain our free trade arrangements but also adopt a common policy for an external tariff imposed on goods imported from nonmember nations. Our heads of state finalized the key instruments to create the Customs Union in June 2009.

We envision that this union will improve commerce and trade in Africa in a variety of ways. For example, today goods being imported from Japan to Rwanda pass under the eyes of border officials at multiple points—as they are off-loaded from a ship at Mombasa, Kenya; when they pass overland from Kenya into Uganda; then again, as they pass the national border into neighboring Rwanda. They receive a final inspection from officials in Kigali. Under the Customs Union, the goods will simply be inspected and cleared only once in Mombasa. We believe reduced inspections for goods will benefit both business and the consumer, streamlining trade, reducing costs, and eliminating opportunities for corruption that can arise at each inspection point.

Strength in Numbers

With a regional population of 400 million and a gross domestic product of almost US $420 billion, ours is an attractive region for investment and trade in this globalized world.

Enhancing regional trade arrangements allows our member nations to better prepare themselves to become fully engaged as active players in the global economy. This training in regional commerce allows industries to grow at a manageable pace until they are ready to graduate into the larger world of global trade. In addition, regional alliances of nations with a unified position wield more clout when they step into international fora than does an individual nation pursuing an isolated national position.

The arrangement promotes good governance because it promotes transparent, competitive, and rule-based trade. COMESA has created institutions to ensure that rules agreed upon by member nations are respected. The COMESA Court of Justice, for example, allows aggrieved parties, be they individuals or countries, to seek redress.

The court was established by the COMESA Treaty in 1994 as one of the organs of COMESA. Currently, the court is composed of 12 judges, coming from 12 different member states of COMESA. The judges of the court are persons of impartiality, independence, and integrity, who also fulfill the conditions required for holding high judicial office in their respective countries. The court’s independence is demonstrated by the fact that the COMESA Secretariat and other COMESA institutions have lost cases before the court.

To provide additional protections for free market principles and property rights protection, COMESA has set up the Africa Trade Insurance Agency (ATI), which covers risks that investors may perceive arising from the political atmosphere. Member countries of ATI must contribute money into the insurance fund, a scheme that creates incentives for countries to deal with investors responsibly.

Through ATI, COMESA covers investments that might be seized and nationalized by an overzealous government. ATI also covers losses that an investor might incur through other government action, inaction, or interference. This insurance also covers losses caused by war, civil disturbance, civil commotion, or terrorism.

Economic Benefits of Integration

This process of economic integration has gained wide acceptance in both economic theory and practice since the end of World War II. In many parts of the globe, regional agreements have created more favorable environments for the development of good governance, the private sector, improved infrastructure, public institutions, and civil society. As this development progresses and matures, economic integration in a region is also thought to contribute to enhanced peace, security, and improved interaction with other world regions.

Certainly some interests may stand to lose in this process. For example, countries that were highly dependent on import duties may incur temporary losses in the short run when the Customs Union becomes fully operational. We are prepared to mitigate and adjust to those losses and are already doing so. In September 2009, COMESA disbursed close to 15 million euros to Rwanda and Burundi for their losses incurred due to the removal or reduction of import duties under the East Africa Customs Union arrangement for the June 2008-June 2009 financial year. COMESA is also looking at how to mitigate possible social costs, such as the loss of national jobs among clearing and forwarding agents whose numbers will diminish as the number of inspection points for goods is reduced.

Significant gains have already been achieved by our member nations and their citizens. The elimination of barriers to intra-COMESA trade has contributed to phenomenal growth in our region. Trade increased five-fold from US $3 billion in the year 2000 to US $15 billion in 2009. Goods such as food products and building materials are moving across the borders of COMESA nations in the greatest volumes.

Our FTA has catered also to the small cross-border trader under the COMESA Simplified Trade Regime (STR), mainly women and youth who trade in small quantities. Crossing national borders by bus, truck, bicycle, and even on foot, these traders carry goods normally valued at less than $500 and, thus, are not required to present a certificate of origin for the goods.

These transactions are minute in the grand scheme of global commerce, but they make a substantial difference in the lives of the people who trade in small quantities of products such as maize meal, sugar, beans, and beverages. Because women are very active in this level of commerce, the small cross-border trade contributes to providing food for children and fees for their schools. We all know that women’s income has a direct bearing on the welfare of our homes, particularly in rural households.

The Next Step

A COMESA Customs Union (CCU) will build on the success of the last decade, resulting in an enhanced flow of goods and services as producers take advantage of the larger markets to distribute and sell their goods. Greater trade will result within the region as Customs Union producers hold a price advantage for their goods over those imported from non-union countries. The CCU nations will come to agreement on harmonizing their respective tax polices so the regional playing field will be leveled, and efficiency in production and competiveness will increase. Other policy agreements are likely to result, sending a message to the global investment community that stability and certainty are improving throughout the region, creating a more favorable atmosphere for investment.

Establishing, operating, and consolidating the CCU is work that still lies before us, and it will require determination and unwavering commitment from political leaders in both the executive and legislative arms of government. Judiciary systems must also rise to their role as protectors of the regional laws, so that companies and investors know that their interests under the law will be protected in the implementation of integration programs.

The stakeholders in our future—the public and private sectors and civil society organizations—must recognize that this process is in the best interest of our families, our countries, and our region. The COMESA Customs Union can serve as an important building block for continental progress. If we do not work together in an organized and orderly manner, Africans will not be able to engage successfully with a globalized world.

An African renaissance must be supported through ever-stronger African institutions that promote a united, strong, and free continent with a global voice and a role in global processes. COMESA is an institution working today to bring that vision into reality.

Africa News Report  Africa News Report is a specialist information dossier dedicated to providing news information and analysis from a diplomatic and political perspective. Topics covered include some of the most pressing health, economic, political and social issues. Besides bringing its multi-facetted news, views and analysis to the fore, Africa News Report seeks to highlight the United States' policies and positions on diverse issues affecting the African continent.
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